One of the most frequently asked questions is how Lendahand selects new projects for our platform. Find out in detail how we go about it and what the due diligence process looks like before a project is available for you to invest in.
Every project we offer is either for financing a financial institution or a business:
- Financial Institutions: Organizations that provide loans to multiple Micro, Small, and Medium-sized Enterprises (MSMEs). Lendahand carefully selects impact-oriented financial institutions that seek funding to provide local entrepreneurs with access to fair financing.
- Individual businesses: These companies are primarily active in sustainable agriculture and must demonstrate a significant positive impact.
Our Investments Team is responsible for monitoring existing investment opportunities and for finding, screening, and monitoring new projects for the Lendahand crowd.
What is Lendahand’s selection process?
A thorough investigation precedes the admission of a financial institution or business on the Lendahand platform. As a social enterprise, we place quality over quantity. As a result, it sometimes takes months (up to a year) before a new company or organization appears on our platform. In doing so, we want to guarantee as much as possible that our crowdfunding activities actually reach those entrepreneurs who need it most and that the financing affects them positively.
Due Diligence and Approval Process
Lending to companies is done only and exclusively after extensive due diligence. Broadly speaking, this process is as follows:
Introduction
1. (Digital) introduction with a potential new borrower, gather basic information.
2. Check by the Lendahand Investments Manager if the prospective borrower meets the minimum requirements. To qualify for investment, an opportunity must meet the investment, credit, pricing, concentration, impact, and compliance requirements.
3. The screening outcome is documented in a Screening Memorandum and submitted to the Investment Committee (IC) for approval before proceeding to the term sheet stage (step 4). The Investment Committee — consisting of one external and two internal members — reviews the memo and decides whether the proposal follows a fast track or a standard track.
Negotiation and Due Diligence
4. Once both parties decide to proceed, they agree on the terms in a term sheet. This document outlines the initial terms and is finalized before the due diligence process begins.
5. After approval of the Term sheet, the due diligence process starts. The due diligence process includes the collection and review of relevant documentation, reference checks, financial analysis, and management checks. The specific documents required may vary depending on the investment track.
The impact assessment is conducted alongside the Credit Risk assessment by the IC members. The assessment primarily focuses on the Annual Percentage Rate (APR), the nature of consumer lending activities, and any available social impact reporting by the company.
A credit score is set (on a scale from A+ to E). Lendahand only offers loans with a credit score of A+, A, B+ or B.
The findings from the due diligence process are consolidated into an Investment Memorandum (IM), which is presented to the IC for review and decision-making.
Know Your Customer
6. In parallel with due diligence, we collect and submit all Know Your Customer documentation (KYC) and anti-money laundering procedures to our Payment Service Provider. They do all necessary checks, including - but not limited to - screening management and directors of the companies based on sanction and exclusion lists.
Approval and Onboarding
7. The Investment Memorandum (step 5) is presented to the Investment Committee (IC) for discussion and decision-making. The IC reviews the memo and provides its recommendations. Once the IM is approved, the process moves to the final step.
8. Time to launch the first project of the new investment opportunity on the Lendahand crowdfunding platform!
Periodical evaluation
Our team periodically re-evaluates the operations of all borrowers. Before each new project of a company can start, several checks are performed again:
- Is the borrower still in compliance with the contractual covenants?
- Is there any reason to believe that they could not meet the repayment obligation?
- Is the Key Investment Information Sheet (a compulsory regulatory document) still up to date?
- Is the new project (in terms of amount) still within the facility contractually agreed upon?
How does Lendahand make sure entrepreneurs don’t pay too much?
It is Lendahand's mission to make sure entrepreneurs in emerging markets get access to affordable financing. With our crowdfunding platform, we want to allow them to grow their businesses and create jobs in their local communities. Now, affordable is a stretch in emerging markets, but it's really important for us to be convinced that the financial institutions you can invest in are charging manageable interest rates to their clients, the entrepreneurs.
In that context, we ask the following questions to the financial institutions, among others:
- What is the effective interest rate you charge your clients (Annual Percentage Rate [APR])? Note: Financial Institutions often advertise with a ‘flat rate’, which doesn’t include supplementary costs, which we also consider.
- How many outstanding loans can clients have?
- How do Financial Institutions analyze clients?
- Is there a loan registration system in the country in question (like the BKR in the Netherlands)?
- What is the financial institution's vision regarding interest rates in the near future?
- How will they try to lower interest rates structurally?
Unfortunately, it’s impossible to prevent a potential negative effect from slipping through the analysis, but generally, we base our opinion on company policies, trust in management with whom we have extensive personal contact, and talking to customers when we visit.
Countries on the sanction list
As mentioned in step 6, Lendahand (via our Payment Service Provider) screens different sanction lists, drawn up by national and international regulators, excluding countries such as North Korea, Syria, Cuba, and Iran. Since 2022, Lendahand has had a European Crowdfunding license. Because of this permit, the European Commission's sanctions lists have become even more important, as they are not static.
- You can view the EU Sanctions Map here
- Read more about the EU's high-risk third-country identification methodology here
The sanctions mean we can no longer enter into new collaborations with companies and organizations in these countries because their state policies against money laundering and terrorist financing are considered insufficient. Repayments on current projects in these countries can, however, continue as usual. As soon as a country puts things in order and is re-evaluated positively, the country will disappear from the list and we will be able to offer new projects in that country again.
The Lendahand Commitment
Lendahand is fully committed to minimizing the risk of overburdening the end customers of financial institutions in our portfolio by following the roadmap described above. We believe in the concepts of crowdfunding and microfinancing - if done fairly and affordably - to create a prosperous and equal world.